Palestinian economy growing — from low base

AndrewTheen of Medill News Service

WASHINGTON (MarketWatch) — Economic conditions are improving in the West Bank and Gaza, according to local residents and outside experts. But the improvements are based on a fragile economy that remains heavily dependent on foreign aid, and severe Israeli restrictions on trade and travel continue to be obstacles to greater growth.

Oussama Kanaan, International Monetary Fund mission chief for the West Bank and Gaza, said the West Bank’s per capita GDP grew 9% last year, but the growth rate by itself isn’t meaningful. “The economy has been recovering from a very low base, therefore the growth that we’ve seen is not really sustainable growth.”

The economic gains of recent years only recently returned the per capita GDP in Gaza and the West Bank to 1994 levels. The annual per capita GDP in the West Bank and Gaza is $2,900, less than that of Vietnam, Uzbekistan and Mongolia. It ranks 168th globally in per capita GDP.

The Palestine Stock Index has been virtually steady over the last year and is about 30% below its 2008 high.

Reuters

Waiters prepare to serve salads at a restaurant in the West Bank city of Ramallah in April.

At the annual American Israel Public Affairs Committee conference this week that attracted top U.S. and Israeli military, political and diplomatic leaders, the Israeli military leaders said a dramatic reduction of checkpoints and roadblocks in the West Bank is a key factor in allowing trade and growth to increase. In 2008 there were 42 checkpoints in the West Bank compared with 16 today.

But, Kanaan said, real change doesn’t happen “merely by removing an obstacle here and there.” An International Monetary Fund report released last month calls for easing the Israeli blockade into Gaza and allowing the Palestinian private sector to have increased access to Israeli-controlled land in the West Bank.

Kanaan said Palestinians face costly delays, quotas and a rigid bureaucracy in obtaining export permits to Israel. “It’s really dependent for its growth on the lifting of external trade restrictions.”

Israeli Prime Minister Benjamin Netanyahu briefly strayed from talk of Iran and security concerns during his remarks to a joint meeting of Congress this week to mention the “booming” Palestinian economy. “Palestinian cities look very different today than what they looked just a few years ago,” Netanyahu said.

Dr. Howard Sumka, CEO of the nonprofit peace organization One Voice and former USAID official, acknowledged the West Bank’s economic growth is “remarkable.” On a recent visit, he saw tremendous commercial and residential construction in Ramallah, including a new luxury hotel. “That’s a clear sign there’s a lot of business to be done in Ramallah,” Sumka said.

Sumka said urban areas are growing more rapidly than rural villages, citing developments like construction in Jenin, new roads and building in the new city of Rawabi.

“Not only do I think it’s great, but I personally take a lot of pride in it,” Sumka said. USAID has provided funds for the construction projects.

But Israel continues to hold 60% of the West Bank under its control, and Sumka said Palestinians’ limited access to farmland, resources like marble and stone and other traditional industries continues to dampen economic growth.

At an AIPAC panel discussion, Sumka said the Palestinian Authority is far from self-sustaining. “In order to keep the whole thing moving it requires a billion dollars in donor assistance every year.”

Without international aid to the PA, Sumka predicted that the gains of recent years “dissolve into catastrophe.”

Some U.S. lawmakers already are questioning whether U.S. aid to the PA should continue because of the recent reconciliation of the rival Hamas and Fatah parties, the former which doesn’t recognize Israel’s right to exist.

While much debate continues over the access to land in the West Bank, there’s a consensus about the pivotal role of PA Prime Minister Salam Fayyad.

Israeli Brig. Gen. Michael Herzog said Fayyad’s reorganization and professionalism of government helps Israel take a less visible role in security operations, which benefits economic development. “As long as what is developing there is not threatening our security interest I think most people would support it.”

This week, Egyptian officials announced they would permanently open a border crossing at Rafah, a development supported by the European Union and Hamas but met with concern in Israel. Sumka said now the onus is on the Egyptians to “exercise control” to prevent the influx of weapons and contraband into Gaza.

“This has the potential to deal a very serious blow to the tunnel economy,” Sumka said, referring to a network of cross-border tunnels which Hamas controls and taxes. He said opening the border could be a good thing for legitimate businesses in Gaza.

Increasing the flow of goods to Gaza is worrisome and poses security challenges, Israeli Brig Gen. Baruch Spiegel said, but Israel is committed to improving the quality of life there.

Such improvements could help cut the region’s high unemployment rates, 38% in Gaza and 17% in the West Bank. Kanaan said the high numbers of jobless continue to pose a problem for Israel’s long-term security.

“The poverty rate will not decline and of course the worsening economic situations would not be conducive. It might foster discontent in the territories.”

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